Lexus Faces Difficult Challenges in China

Lexus China ES

Bloomberg has an article investigating the difficulties Lexus faces in China:

When shopping last year for his first car, Will Zhang considered a Lexus CT200h and a BMW 320i. Though he preferred the Lexus, he went with the BMW because at 340,000 yuan($55,400) it was 18 percent cheaper.

While the Lexus lists for about $600 less than the BMW in the U.S., in China it’s $13,000 more because the German automaker produces its cars in the country, whereas made-in-Japan Lexus faces a 25 percent tariff.

While the design of Lexus vehicles has become much bolder, the company remains conservative in China, despite being the fourth largest luxury automotive brand behind Audi, BMW & Mercedes.

Brands like Infiniti (12,000 sales in 2012) & Acura (less than 3,000 sales in 2012) are taking huge financial risks building factories in China, despite selling a fraction of what Lexus’ sales volume (60,000 sales in 2012).

So what is Lexus waiting for?

Toyota may start producing Lexus cars in China in 2015 or 2016, when annual sales will likely reach about 100,000 units, according to Kota Yuzawa, an auto analyst with Goldman Sachs Group Inc. in Tokyo. A single model typically needs to sell 30,000 to 40,000 units a year for local production to make economic sense, he said.

If Lexus does decide to start manufacturing vehicles in China, it will likely start with the ES — exact sales figures are unavailable, but last year Lexus estimated sales of that model to be 3,000 per month.

Read the Bloomberg article on Lexus in China